Letter From Doug Wilsman
Pension Benefit Security Report by Doug Wilsman, 1-19-04
Medical Coverage: On January 14th, 2004, UAL announced in the “Newsreal” that it would seek modifications to retiree medical coverage for those who retired before last July 1st to make the new coverage comparable to the benefits offered to employees that retire after that date. UAL seems to be seeking a double whammy: more contributions from retirees for less coverage.
UAL writes it is committed to reach a consensual agreement with the retirees and has invited ALPA to represent us in “negotiations.” (Knowing UAL, these negotiations are likely to consist of having our “representatives” pick the poison----the specifics of how UAL will reduce its costs where the cost reduction dollar amount is not negotiable.) The MEC Communications Chairman wrote on the 14th that “….ALPA does not represent nor serve as an advocate for retired pilots…” and he wrote that URBPBA (the Hall/Dubinsky group) had been formed to represent retired pilots. Meanwhile, on the 15th, URBPBA announced to the press that it will seek to represent its members in discussions with UAL over any changes in medical benefits.
The AFA, which represents UAL’s flight attendants, has announced that it plans to represent the retired FA’s and has already taken legal action to attempt to block UAL from reducing the medical benefits of those who retired before July 1st. But this legal action might be focused only on 2,500 FA’s who took early retirement last May and June. Today, 1-19-04, it is too early to jump to conclusions about any of this stuff. By the time this RUPANEWS is delivered, if things haven’t become more clarified, readers can take advantage of UAL’s offer to answer retirees’ questions on a toll-free line at 1-866-825-4101.
Chapter 11 Exit: UAL has just announced that it plans to exit Chapter 11 by next June 30th. It reports that it has contracted with two banks for a $2.0 billion loan that requires UAL to get approval from the feds for a $1.6 billion loan guarantee. The issue of underfunded pensions may be put on the back burner for a few years via an IRS waiver and some urgent legislation by the U.S. Congress, which is due to return after its holiday recess tomorrow. It is not clear whether the failure to obtain this IRS and legislative relief could be a deal-breaker. If UAL were to ask the judge in bankruptcy court to distress terminate the Pilot’s A-Plan in order to successfully exit Chapter 11 (a la US Airways), UAL would need to notify the retirees of its intentions no later than April 30 in order to exit by June 30. Today, it is anyone’s guess how all this will settle out.
A-Plan’s Funding Status: A month ago UAL mailed all of us participants the Summary Annual Report on the status of the A-Plan funding as of 1-1-03---a year ago. I sent away to get the 2.5 pounds of additional paperwork from UAL that anyone can get for $36. Then I estimated the changes that may have occurred in the last 12 months, to come up with the funding level at the beginning of this year---19 days ago. For example, about 480 retired last year, many of them early, bringing the total retirees and widows drawing benefits to about 5,900. The total benefits paid last year (2003) were about $385 million so the portfolio’s investment yield needed to be 15% to offset just this factor.
The bottom line is that if the plan had hypothetically terminated on the first of this year, the estimated level of post-termination benefits paid by the federal Pension Benefit Guaranty Corporation (PBGC) would have been unchanged from the levels I estimated a year ago. At least I don’t think we have gone further in the hole. The 26% gain in the stock market was offset by four negative factors: (1) a reduction in the PBGC’s interest rate has caused the retirees’ liabilities to increase on paper, (2) the added burden of the new retirees and their partial lump sum cashouts, (3) the portfolio was only about 56% in common stocks and (4) UAL’s failure to make any contributions last year.
There are so many variations in the history of each individual participant who receives benefits, that none of the experts at UAL, ALPA, and URPBPA are today willing to estimate the amount of post-termination monthly payments by PBGC in a hypothetical distressed termination. They all say the plan may not terminate, so why bother. I have written a six-page report on what might happen after a termination, and it takes all the six pages to explain the variations. Those who have access to the RUPA Website at www-rupa.org can see my report, dated 12-31-03. On RUPA’s home page click “Benefits” and look for the quick link to the Wilsman Report. Doug